Supplier bankruptcy could signal approaching storm

Some customers are just beginning to see success in renegotiating contract terms to more evenly distribute inflated material, labor and transportation costs between supplier and customer, he said, but financial pressure remains strong on suppliers.

At Birmingham-based Brooks Wilkins Sharkey & Turco PLLC, the firm’s co-founder and supply chain litigation lawyer Dan Sharkey said he’s also seeing more and more business disputes come through the door.

“The biggest issue is still pricing: with all these cost increases, suppliers need price increases to survive, and some customers are still fighting tooth and nail,” Sharkey said in an email.

Sharkey said he doesn’t think suppliers have reached a tipping point because OEMs learned during the Great Recession that letting suppliers fail is bad for business.

At the same time, cutting costs is part of automakers’ DNA, and Sharkey said many of its customers are scrambling to end unprofitable relationships to avoid financial hardship.

“I haven’t heard a lot of optimism,” Rustmann added.

This lines up with the latest Supplier Barometer report released on August 2 by the Original Equipment Supplier Association, which saw supplier confidence plummet.

In the survey of executives from more than 100 auto suppliers, their top three concerns were production stoppages, the weak US economy and labor availability. Most said they thought a recession was more likely than not next year and 35% said fears of not being able to recoup rising costs from customers are hampering investment plans.

“The outlook for the third quarter has fallen deep into pessimistic territory due to continued worries about production shutdowns and heightened concerns about a weakening U.S. economy,” according to OESA. “Sentiment deteriorated sequentially across companies of all sizes, but fell drastically for mid-tier providers.”

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